Ms. P. Radhakumari, W/o. Late Padmakumar, Suspended Director And Shareholder Of M/s. Uthara Fashion Knitwear Ltd. vs Omkara Assets Reconstruction Pvt. Ltd, Mr. Thilagar Murugesan, Chandrasekar Sagutoor

(Hybrid Mode)

[ORAL JUDGMENT: Justice Sharad Kumar Sharma, Member (Judicial)]

The Appellant herein is the Erstwhile Director of the Corporate Debtor M/s. Uthara Fashion Knitwear Limited. The said Corporate Debtor was engaged in manufacturing of clothing apparel, having being incorporated as such on 23.09.1993. The Corporate Debtor approached the Industrial Development Bank of India, in November 1996 seeking financial assistance for the purposes of establishing a new integrated knitted garments, unit in Kovilpalayam Village near Pollachi, Coimbatore District.

Consequent to this, IDBI has sanctioned a loan of Rs. 600 Lakhs on 15.02.2000 under the scheme called as ‘Technology Upgradation Fund Scheme’, in consortium with State Bank of India (SBI) and State Bank of Hyderabad (SBH), who provide committed to Rs. 200 Lakhs each. In addition, working capital of Rs. 15 Crores was also sanctioned, and the documents in relation thereto were executed for loan disbursement.

It is a case of the Appellant, that the actual disbursement, of the loan by IDBI was only of Rs. 420 Lakh as against the sanctioned amount of Rs. 600 Lakhs. Other consortium banks also refused to disburse their share of financial assistance as a result of which the Corporate Debtor was unable to complete the unit and commence production, which resulted in the operations of the company coming to a standstill and erosion of the entire net worth of the company.

Subsequently, IDBI declared the account of the Corporate Debtor as Non-performing Asset (NPA) on 29.05.2002 and recalled its loan by its letter of 31.10.2002. It also invoked the guarantee furnished by the directors and issued notice on 28.11.2002, and subsequently filed OA 289/2003 before DRT-I, Chennai on 16.10.2003 under Section 19 of Recovery of Debts, due to Banks and financial Institutions Act, 1993 (RDDBFI Act). Later due to bifurcation of jurisdiction, the OA was transferred to DRT-II, Chennai and was re-numbered as OA No. 413/2007. DRT-II, Chennai allowed the applications on 19.06.2009 and issued the Recovery Certificate DRC No. 78/2009 on 31.08.2009 for an amount of Rs. 10,56,54,483/- comprising of Rs. 5,37,28,928/- as principal and Rs. 5,37,28,928/- as interest.

In the meanwhile, the Central Government constituted Stressed Assets Stabilisation Fund (SASF) by a trust deed dated 24.09.2004 with the object of acquiring stressed assets of IDBI for the purpose of recovering the amounts thereunder and notified SASF as a Financial Institution. On 30.09.2004, IBDI transferred the facilities granted to Uttara Fashions Knitwear Limited alongwith an security interests. SASF proceeded to issue notice under Section 13(2) of the SARFAESI Act, 2002, on 09.03.2011 for a sum of Rs. 12,02,32,476/- outstanding as on 01.01.2011 based on the aforesaid Recovery Certificate. Further, the name of SASF was substituted in place of IBDI in the said Recovery Certificate DRC No. 78/2009 by the order of DRT-II in MA No. 98/2014 and corrigendum dated 30.04.2015, which was confirmed on appeal by DRAT, Chennai vide order dated 18.04.2018 in MA No. 161/2017. The said order of DRAT confirming substitution of SASF as Financial Creditor in place of IDBI has attained finality, with dismissal of appeal on 18.04.2018.

Subsequent to this, SASF, Respondent No. 1 herein, approached the Ld. Adjudicating Authority (NCLT, Chennai) by filing an application IBA/895/2019 under Section 7, on 24.06.2019, seeking commencement of CIRP against the Corporate Debtor on the ground that an amount of Rs. 76,64,72,470/- is due as on 01.04.2019 and the Corporate Debtor has defaulted in repaying the same, Ld. Adjudicating Authority, after hearing both sides, admitted the said application vide order dated 01.07.2022, commencing the CIRP process as against the Corporate Debtor. The said is impugned in the instant appeal.

The prime question, which fell for consideration in the proceedings before the Ld. NCLT, in the aforesaid company petition, as to whether the proceedings drawn under Section 7 of the I & B Code, 2016, after lapse of five years would be barred by limitation owing to the so-called default, which was reckoned as to be 22.06.2018, as a consequence of the projected loan agreement of 02.03.2000, which was said to have been defaulted.

Apart from the question of limitation, no other question has come into play, nor it has been pressed upon by the Ld. Counsel for the Appellant, for the admitted facts, that in pursuance of the notice issued under Section 13 (2) of the SARFAESI Act, 2002, on 09.03.2011 and issuance of the Recovery Certificate on 31.08.2009.

According to Part IV of the application preferred under Section 7 of the I & B Code, 2016, the amount debt defaulted to be due was shown as Rs. 76,64,72,470/- (Seventy-Six Crore Sixty-Four Lakh Seventy-Two Thousand Four hundred Seventy) which was shown to be standing in the books of accounts of Corporate Debtor as on 01.04.2019.

While opposing the motion of the instant company appeal, as taken by the Appellant, while questioning the impugned order of 01.07.2022, the Ld. Counsel for the Respondents had submitted that in fact as of now, nothing much material survives to be argued in the instant company appeal for the reason being that, there had been a corresponding proceedings under Section 95 of the I & B Code, 2016, the same was determined by an order passed on 20.09.2018 and admitted into the CIRP process by an order passed on 28.08.2025 almost based upon the same facts and circumstances, and these proceedings under Section 95 of the I & B Code, 2016, remained unchallenged and had attained finality.

In that eventuality where under Section 95 of the I & B Code, 2016, proceedings no question of limitation was ever raised in the proceedings under Section 95, there couldn't have been a carrying out of a new case by the Appellants in the present situation for the reason being that, in accordance with the Recovery Certificate as referred to herein above, i.e., dated 31.08.2009 issued in OA No. 413/2007 filed by the Financial Creditor, the amount due was settled to paid as per the said determination in the OA proceedings.

The Respondent, while challenging the issue as it has been raised by the Ld. Counsel for the Appellant, on the ground that the proceedings being barred by limitation, submitted that in fact there was no bar of limitation, which would be attracted in the given set of circumstances as such for the reason, being that in the subsequent proceedings, which has been taken or the internal documents, which was prepared by the Corporate Debtor itself, it showed that there had been an admitted acknowledgement of the liability in accordance with the balance sheet entries recorded for the year ending Financial Year 2011-12 and 2012-13. Besides that, the Corporate Debtor had acknowledged its debts from time to time by way of proposing a one-time settlement, besides that the mail communication too would be an admission of default and due.

If we logically look into the issue, apart from the fact that the books of accounts and the balance sheet did reflect the admitted balance standing, admitting the liability, the very fact that the Corporate Debtor itself had knowingly attempted to enter into a one-time settlement with the Financial Creditor by offering proposals, that itself will amount to be an admission of a debt by the Corporate Debtor because until and unless in the absence of there being any admitted amount due to be paid, which had been acknowledged there couldn't have been an offer of a willing proposal by the Corporate Debtor to enter into a one-time settlement with a Financial Creditor.

It is only, because of the fact that the Corporate Debtor, in the various processes adopted by it for the purposes of submission of the one-time settlement, had referred to various documents on record for the purposes to show the financial liability due to be paid. The offer of one-time settlement was a conscious decision of the Corporate Debtor which would be amounting to be an admission of liability payable to the Financial Creditor.

The Appellant tried to carve out a case, that the cause of action for the purposes of drawing the proceedings under Section 7 of the I & B Code, 2016, would stand vitiated for the reason being that there was an issuance of a Recovery Certificate by DRT-II, Chennai on 31.08.2009. It's this cut-off, which has been taken by the Corporate Debtor, is to determine the aspect of limitation, contending thereof that, if at all the limitation for filing the proceedings under Section 7 of the I & B Code, 2016, would stand initiated would be determined with effect from 31.08.2009, that is in the light of the provisions contained under Article 137 of the Limitation Act, the same could have been preferred at the most by 30.08.2012 and not beyond that. They submitted that the date of default as mentioned in Part IV of the application under Section 7 of the I & B Code, 2016, to be 22.06.2018 cannot be accepted owing to the Recovery Certificate as issued on 31.08.2009, as the date of default has to be relegated and construed from the date of the Recovery Certificate, i.e., 31.08.2009.

In response to it, the Ld. Counsel for the Respondents / Financial Creditor foundationed its arguments on the ground that, if we take into consideration the principles laid down by the judgment of Dena Bank (now Bank of Baroda) V C. Shivakumar Reddy and Anr. in Civil Appeal No.1650 of 2020. Particularly, the aspect of limitation that has to be determined from the date when the admission of debt and default has taken place or in view of the reflection made from the subsequent books of accounts, and proposals of one time settlement, and from the various other email communications of the Corporate Debtor, which would amount to be admitted entries of liability.

If we go through the reports and after considering the arguments extended by the Ld. Counsel for the parties, there is no dispute inter se between the parties that there happens to be an admitted debt and default, and the only contention that was restricted to be argued by the Corporate Debtor was as to what would be the aspect and parameters of limitation. The Ld. Tribunal while considering the inter se implication of Section 238A of the I & B Code, 2016, to be read with, Article 137 of the Limitation Act, observed that, the Recovery Certificate issued by the DRT as against the Corporate Debtor on 31.08.2009, coupled with it, it has to be read with the balance sheet of 2011-12 and 2012-13, where the Corporate Debtor itself has acknowledged the debt. Besides that, what would be more important than in the earlier proceedings is with regard to the aspect pertaining to the acknowledgement of debt in the balance of the Corporate Debtor.

In the instant case, the acknowledgement of the debt has fallen from, the entries made in the balance sheet, apart from it, the email communication of 27.09.2018, itself has shown that the Corporate Debtor had made an offer for one-time settlement. In that eventuality, the default has to be reckoned at least from the date of admission in the light of the provisions contained under Section 18 of the Limitation Act. Even if we read the email communication, which has been extracted in the impugned order, the same inference could be drawn from it.

The Ld. Tribunal, in the light of the observation made in Para 142 and 143, of the judgment of Dena Bank (Supra) has observed that once the debt and default, is an aspect that has been admitted and the Corporate Debtor has voluntarily after the proclaimed date of default, has proposed a one-time settlement on 27.09.2018 as referred to herein above, filing of an application under Section 7 of the I & B Code, 2016, on 11.07.2019 would not be barred by limitation. Para 142 and 143 are extracted hereunder: -

Logically too, if the language of Section 18 of the Limitation Act is taken into consideration, it gets attracted, as soon as the moment of acknowledgement of debt comes in writing by a party against whom, a right to initiate a resolution process under Section 7 of the I & B Code, 2016, accrues. The knowledge in itself is a cause of action and the benchmark for determining the aspect of limitation.

Owing to the aforesaid reasons which we have already dealt with regards to the implication of admission of default which has stands supported by the various documents which have been placed on record particularly pertaining to the OTS proposal of 21.11.2013 followed by the OTS Proposal of 30.01.2015 as well as the attempt made for the negotiated settlement on 27.05.2014 that itself be construed to amount to be an admission of a default, because until and unless there is an existence of default, there was no question for the appellant to make an effort for negotiation or for that matter to make any effort for an OTS settlement.

A process of OTS settlement or a negotiated settlement is a process, which is preceded by an admission of default. Apart from the aforesaid fact, particularly the email communications, a particular reference of which has been made by the Ld. Tribunal in the impugned order, that itself shows that, in the email communication which was made by the Appellant way back in September 2018, the Appellant had admitted the default aspect, and if that be the reason, at least we are not required to venture into the aspect of default as to whether it existed or not for the purposes of initiation of the proceedings, before the Ld. Tribunal.

Although the question of limitation was an exclusive aspect which was harped upon and which was also confined to be argued by the Appellants counsel before this Appellate Tribunal. But owing to the consistent opinion, which has been laid down by the Principal Bench as well as by the Hon'ble Apex Court, laying down the parameters as to what would be the guiding factors for the purposes of determining the aspect of limitation, even if the default as chanced, on a date much prior to the date of admission of the liability, because any subsequent admission of default will provide an extension for determining the limitation under Section 18 of the Limitation Act.

In the instant case, the principles, as laid down in Dena Bank's judgment, particularly that as contained in para 142, will come into play. Because of the admitted communication made by the Appellant in its email communication of 27.09.2018, there is an apparent admission of default and a liability to pay. In that eventuality, where the admission of default is an aspect accepted by the Appellant, the recuse to Section 18 of the Limitation Act will come into play for the purposes of justifying the initiation of proceedings under Section 7 of I & B Code, 2016.

The contents of the records are quite explicit in itself, which reflects and admitted communications that were made by the Corporate Debtor for the purposes of making efforts to settle the debt due to be paid by it and this period of making efforts for settlement of the debt would be taken as to be the initial acceptance of the fact of debt due to be paid because until and unless, there is an initial acceptance of debt due to be paid. There will be absolutely no possibility or any occasion for the Corporate Debtor for making any efforts, subsequent thereto to settle the dispute by way of any of the measures, as a reflected from the records by way of OTS or the negotiated settlement, as offered by the Appellant to settle the dues, which were reflected in the balance sheept of the Corporate Debtor.

Though not required, but still one aspect which was argued by the Ld. Counsel for the Respondent, was as to whether at all, the proceedings could have been continued through the substituted heir of the deceased Appellant. However, this question, as raised by the Ld. Counsel for the Respondent has been dealt by this Appellate Tribunal in the order passed by this Appellate Tribunal on 24.12.2024, when we had substituted the Appellant to be represented by Mrs P. Radhakumari in place of earlier Managing Director Mr. P. Padmakumar.

We are of the view that since the consequences of the substitution, which has been legally permitted to be carried has not been subjected to challenge in any subsequent proceeding by the Respondents at this stage. He cannot contend that the proceedings could not be carried forward any further by the substituted heirs of the deceased Appellant, may be that in her capacity as a Director, was having an independent status, but still even if Mrs P. Radhakumari as a Director had not preferred the appeal, as against the impugned order at the relevant point of time, but still his rights would accrue owing to the substitution which was allowed by this Appellate Tribunal on 24.12.2024 and which remained unchallenged. In that eventuality, the argument extended by the Ld. Counsel for the Respondent in order to oppose the company appeal, alleging it to be non-sustainable the same is turned down.

The principles of substitution, are almost akin to the provisions contained under Order XXII of the CPC, and it is by adopting the aforesaid principles Rule 53 has been incorporated under the NCLT Rules 2016, which prescribes for a right to a party to the proceedings, to substitute the legal heir or a party to whom the right to sue is devested upon a death of a party to the proceedings, to whom a right to litigate subsists or where the right of the deceased Appellant is required to be preserved by carrying out the proceedings further at their behest by his heirs. It's exercising those powers under Rule 53 of the NCLT Rules 2016, which almost happens to be akin provisions to be applied in appeal, to protect a right to sue upon death of a party. The substitution was permitted to be carried by an order passed by us on 24.12.2024, in the order thus passed by this Appellate Tribunal on 24.12.2024, while recording the objection taken by the Respondents counsel, as to whether at all a right to sue survived to the proposed heirs of the deceased Appellant, that is the present substituted heir Mrs P. Radhakumari was an aspect considered by this Appellate Tribunal in the order passed on 24.12.2024 and we permitted the substitution to be a carried, reserving the rights for the Respondents to raise the objection in that context when the appeal is considered on merits.

The Ld. Counsel for the Respondent did raise the objection, but having considered the objection, we are of the view that, a right to sue in relation to a subject is for the right of an individual who had already filed and appeal, its to safeguard the litigation and the claim raised in the proceedings by it. Upon the death of a party to the proceeding who was contesting the same for vindicating his legal rights, if those are still subsisted could be pursued by the heir, who, though might have been having an individual or independent right in the instant case, as a director to pursue the proceedings of the appeal, but has chosen not to file the same. It would be having only an effect of taking away the individual right of Mrs P. Radhakumari to institute a fresh proceedings of a company appeal from challenging the impugned order, which is a subject matter of the instant company appeal. But nothing under law debars her in the individual capacity to represent the cause by way of substitution of the deceased Appellant, Mr. P Padma Kumar, the late husband of the substituted heir Mrs P. Radhakumari.

In fact, in the given set of circumstances, it is not Mrs P. Radhakumari, who was pursuing her own individual remedy or rights, but rather, as a consequence of the order of substitution, she was stepping into the shoes of litigation, as initiated by her late husband, in the capacity of being the managing director of the Corporate Debtor.

In that eventuality, Mrs P. Radhakumari could not be taken as to be pursuing her individual rights, but was rather carrying the further proceedings of her late husband, hence, the contention raised by the Ld. Counsel for the Respondent that she, since has waived off her right to pursue her proceedings as against the impugned order by preferring of an appeal, cannot even cannot seek her substitution to continue with the instant appeal is a plea, which is a plea not acceptable by this Appellate Tribunal.

The Respondent had filed a reply by way of notes of submission on 20.06.2023, wherein certain additional facts have been placed on the record, contending thereof, that Respondent No. 2 thereafter has received Resolution Plan in the shape of Form G published by him, which was approved by the Respondent, in the 8^th CoC meeting, which was held on 06.02.2023, that is subsequent to the passing of the impugned order. Accordingly, the Respondent No. 2 contended that they had filed an IA No. 428 of 2023 before the Ld. Adjudicating Authority seeking their approval of the Resolution Plan. What proceedings have been carried in pursuance to the impugned order, may not be of much concern for this Appellate Tribunal at this stage when we are affirming the order of admitting the Corporate Debtor to the CIRP proceedings subsequent action has to take its own course. Hence, the pleading raised in the objection by the Respondent with regards to the subsequent processes undertaken may not be relevant for this Appellate Tribunal at the moment to be considered by this Appellate Tribunal, as they all will be consequential in nature to the impugned order.

For the reasons which we have already dealt with, and for the ratio which has been already considered by this Appellate Tribunal and which stands un-rebutted even till date by any other contrary view taken by the Superior Court, we conclude that, the proceedings under Section 7 of the I & B Code, 2016, which stood commenced by virtue of the impugned order does not suffer from any bar of limitation, owing to the admitted factual backdrop, which didn't requires any further judicial scrutiny to be established particularly when it is an admitted case of the Appellant which could be reflected from her own documents relied by the Appellant in the proceedings before the Ld. Adjudicating Authority.

In that eventuality, the order of admission of Section 7 application of the I & B Code, 2016, will have to be construed from the last email communication made by the Appellant on 27.09.2018, wherein in the email communication the Appellant has admitted the aspect of default, hence the limitation has to be construed from the said date in the light of the provisions contained under Section 18 of Limitation Act, as well as, in the light of the ratio laid down by the Dena Bank judgment (Supra).

Owing to the aforesaid, we don't find any merit in the company appeal. The same is accordingly 'dismissed'. All pending 'interlocutory applications' would stand closed.